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Risk sharing

Big data, big gains. That is the mantra of China’s tech giants Baidu, Alibaba and Tencent. One area where that seems to be undeniably true for the customer, and not just for companies, is insurance.

Late last month Alibaba’s financial affiliate Ant Financial joined forces with Trust Mutual Life to launch China’s first online mutual health insurance scheme. Within two weeks of Xianghubao’s debut on October 16 it had gained over 14 million members.

A mutual insurance scheme is based on the industry’s core principle of spreading risk. When a member becomes sick, the other members bear the cost of their treatment; and the more members, the lower the cost to participate.

Attempts to run similar schemes in China have failed in the past due to the large number of people making false claims.

Ant Financial believes it has the ability to prevent fraudulent claims because membership of its scheme is dependent on establishing a ‘trustworthy’ score with its credit rating system Sesame Credit.

If you shop regularly on Taobao or Tmall – and pay on time – your score goes up. It also rises if you pay your utilities with Alipay, give to charity via it, or use any of Alibaba’s fintech services. Even being friends with people who have high Sesame Credit scores is monitored and counts in your favour.

In a recent article on the rating system a journalist from Wired magazine spoke to a 30 year-old Shanghai female with a 710 score (out of 950) who explained: “If your friends are all high-score people, it’s good for you. If you have some bad-credit people as friends, it’s not nice.” She’d qualify to join Xianghubao, where the minimum Sesame score required is 650.

Ant’s novel approach has aroused a lot of interest. “The fact that this product attracted so many people to participate in such a short time shows that the public demand for insurance is urgent and that the potential is enormous,” Yang Fan, CEO of Trust Mutual life said.

In recent years the Chinese government has worked hard to make sure most of its citizens have basic medical insurance cover. Yet in cases of serious illness most people still need to dig deep into their own pockets.

Xianghubao’s policies cover more than 100 serious diseases and support total financial claims up to a maximum of Rmb300,000 ($43,284). It also promises to reimburse claims with almost immediate effect after medical documents are uploaded to the app.

According to data released by Ant, 63% of those that signed up to the new scheme have no commercial health insurance.

The scheme is particularly aimed at people who have yet to reach retirement and who thus have not got maximum state support. Customers can choose when and if to draw from the scheme but they can only do it once, after that they have to leave.

Similarly people can withdraw from the scheme at anytime and stop making payments to help other members. Given the lower probability of serious illness for younger people, they pay just Rmb200 in their first year.

“I cannot afford commercial insurance. I feel more relaxed knowing there is now something I can fall back on,” said one new Xianghubao member on Sina Weibo.

Yet this new product is only the tip of the iceberg. Chinese tech giants have been getting into all forms of insurance in recent years – leveraging their position as aggregators of personal data.

Tencent, for example, has teamed up with Taiwan’s Fubon Financial to create Wemin insurance which will sell property and casualty insurance policies through its WeChat platform.

And Tencent, Alibaba and Ping An have already combined to create ZhongAn – China’s first online-only insurer – which listed in Hong Kong last year. Meanwhile, Baidu, the internet search engine, is proposing to sell car insurance based on people’s internet history and driving habits – thanks to the extensive data collected from Baidu Maps.

“We know a lot about car owners’ driving preferences. What are their average driving speeds? Do drivers hit the brakes very often? All of this driving behaviour can be taken into consideration to find out how much they need to pay for auto insurance,” Tech in Asia quoted Robin Li, Baidu’s chairman and chief executive as saying last year.

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